We weigh up the pros and cons of using an ASP - will it provide a competitive advantage. The answer from our experts is that ASPs are most useful for lowering costs
I am considering turning to an application service provider (ASP) for rental of applications. I am wary, however, of ending up with a vanilla solution that leaves me unable to differentiate myself from my competitors. Is this a fair appraisal of the impact the ASP model has on one's IT strategy?
ASP model is immature, unproven
Senior research fellow in information systems, Cranfield School of Management
If, when you talk about "differentiate from my competitors", you mean gain some advantage in the marketplace, then the simple answer is: yes, you will end up with a vanilla solution, and no, you won't be able to differentiate yourself from competitors. Remember, your competitors can rent the same applications from your provider.
If you look at the arguments for using an application service provider (ASP) they are predominately based on cost savings and improving efficiency, not competitive advantage.
Yet, one can see the potential of using an ASP where first-mover advantage is likely to translate into lasting competitive advantage; in situations that require flexibility to exit a business or rapidly ramp up business volume; or where the wrong in-house technology decision could inhibit business growth.
Be careful about rushing to an ASP. While the economics may look compelling, the ASP model itself is still immature, and to a large extent unproven. Many issues still have to be addressed such as quality of service, support, security, scope or flexibility of services and even pricing. The extent to which the software can be customised is also questionable at this stage.
Remember enterprise systems do not get easier to implement just because they are delivered over a remote server rather than a local one.
Select software, then delivery type
Paul Williams, Arthur Andersen
I would advise you to treat an ASP as an alternative means of delivering an application to your users and customers. In other words, do not let a potential means of delivery through an ASP determine the selection of software to meet your business requirements.
Select the software that best meets your business needs both now and for the future. Then consider the relative advantages and disadvantages of ownership and rental, if indeed there is a suitable ASP for your chosen solution. You must treat this as a structured project, developing a business case and carefully considering long- and short-term implications both of the package itself and of using an ASP.
There are many things that you will need to consider when looking at ASPs such as: support and upgrade arrangements, the type of application (as some lend themselves much better to the ASP model), scalability of the solution in the future and, not least, the long-term cost of ownership.
The key is for your business to develop business processes that are designed to support and enable your business plans. There can be advantages in selecting a standard package solution, but even this is unlikely to be a vanilla one as many packages in the areas of enterprise resource planning, supply chain management, customer relationship management and so on will require customisation through the use of standard package features.
When packaged solution is valid
Differentiation through IT is rarely due to an application. It is due to the way systems are used or combined by an imaginative management. Most organisations could use identical packages for accounts, purchasing, sales, manufacturing and so on in the same way they use identical word processors and e-mail.
A bespoke system is justified when:
- The system is a new concept that offers a strategic advantage - it will change the industry or the organisation's position within the industry
- The available packages will not support some critical and unique business process
- The available packages will not support some key differentiator for an organisation
- It is clearly a more cost-effective solution.
If a packaged solution is appropriate, the decision to use an ASP is simply a decision to outsource. Service quality and cost of ownership would be the main considerations when outsourcing utility applications such as e-mail.
For line-of-business systems the impact on future integration should be considered, as this will become critical in the world of e-business.
Is using the Internet cost-effective?
Most of us are still asking the question, "What does ASP mean?" At this stage in the development of the market, you can probably ask two experts and get al least three answers. Having worked out what it means, most of us will want to wait for product offerings to appear and gain experience of ASPs in a low-profile, non-critical area, before adopting them as part of the IT strategy. There are some formidable issues.
First, the delivery mechanism is the Internet. So we immediately have to ask whether reliability, performance and security are going to be adequate. Achieving the required levels over the Internet may be possible, but at a price that may erode the other financial benefits.
Then there is the degree to which IT is a differentiator for your company. Even quite small businesses today are established users of a variety of business systems, building up a portfolio of applications from different suppliers, or tailoring integrated products to suit their needs, and tying them together with complex linkages. The service provider will argue that this leads to high costs which could be cut dramatically.
The questioner has hit the nail on the head. If you go for the plain vanilla solution offered by ASPs, will you lose the differentiation and competitive edge your company gains from its IT systems? In some industries IT may not be a differentiator, but they have probably outsourced already. Perhaps ASPs will end up offering highly tailored solutions, become indistinguishable from outsourcers and lose their apparent price advantage. It will be interesting to see.
As the person responsible for IT in a small to medium-sized manufacturing firm in the Midlands, I read with envy of the cutting-edge things larger enterprises are doing in the field of e-business. My question is this: what should you do online, and how should you prioritise, with only a limited budget?